Transcript The Hellenic Republic`s Fiscal Policies

HELLENIC REPUBLIC
From the Irish Model to the Lisbon
Strategy:
The Greek Path to Competitiveness
Professor Helen Louri
Athens University of Economics and Business
Director, Prime Minister’s Economic Office
November 2005
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HELLENIC REPUBLIC
The Irish Model
Ireland in crisis
• Poor economic performance in the 50’s caused
massive emigration
• Following the 70’s oil shocks, attempt to boost
demand through increased government expenditure
• Extensive hiring by the public sector in order to
reduce unemployment
• Ambitious programme of public infrastructure led to
increased public expenditure, deficits and debt
• Interest payments increased further due to all time
high interest rates
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HELLENIC REPUBLIC
The Irish Model
In 1986, Ireland was facing a difficult fiscal position and high
unemployment. Under the current circumstances prospects were
gloomy.
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Fiscal deficit at 10.3% of GDP
Government debt at 114.5% of GDP
Unemployment at 17.4%
Dependency ratio peaked in 1986 at 224 dependents per 100
employed
• Net emigration approached 1% of the population
• Taxation jumped up by 10 percentage points of GNP in 1981-86
• Growth rate of GDP averaged 2% in 1981-86
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HELLENIC REPUBLIC
The Irish Model
The turnaround
1. Fiscal Stabilization
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Government’s role in the economy was gradually reduced.
The 1988 budget had the biggest cuts in spending in 30 years.
Incentives were given for early retirement, cutting public
sector employment by up to 10,000 jobs.
Unemployment was being reduced slowly but exceeding 10%
up to 1997 and reached 4.3% in 2000.
The dependency ratio was down to 124 per 100 employed by
2000.
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Fiscal deficit was drastically reduced from 13.7% of GDP in
1981 to 1.7% in 1989 and to a surplus of 4.7% in 2000.
By 1990 government debt was less than 100% of GDP (96%)
and reached 39% in 2000.
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HELLENIC REPUBLIC
The Irish Model
2. Focus on growth
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Improving labour skills/education
Making labour market more flexible
Increasing employment participation rates
Reducing tax rates
Attracting foreign investment especially in
high value-added sectors
Efficient use of EU resources
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HELLENIC REPUBLIC
The Irish Model
3. The social pact- A ‘partnership approach’
• The weaknesses of the economy facilitated an
agreement between the unions, employers and
government on a three year Programme for National
Recovery:
Moderate wage increases in return for favorable income tax
reform, flexible/less working hours, improved education,
retraining programmes, social protection.
• A series of three-year agreements followed :
Programme for economic and social progress, Programme for
competitiveness and work, the Partnership 2000, Programme for
prosperity and fairness (range of objectives extended to
promoting entrepreneurial culture and bringing about a more
inclusive Ireland).
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HELLENIC REPUBLIC
The Lisbon Strategy
It is more than likely that the Irish success story
inspired the structural reform strategy that was
introduced at the Lisbon European Council in
March 2000. Member-states agreed upon a 10
year programme for the EU to become
“The most competitive and dynamic
knowledge-based economy in the world,
capable of sustainable economic growth with
more and better jobs and greater social
cohesion”.
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HELLENIC REPUBLIC
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Targets
The member states agreed to implement necessary reforms in five
broad policy areas:
Pursue fiscal stabilization
Improve the business environment
Complete the internal market, further opening of regulated markets, reduce
red tape, promote efficient pubic services, lower the cost of doing business.
3.
Employment/Education, innovation and research
Speed up the transition towards a knowledge driven economy, improve the
environment for private research investment, promote life-long learning.
Facilitate retraining and job search. Increase employment participation.
4.
Social cohesion
Strengthening equal opportunities for the disabled, promote gender equality
and reduce regional disparities (according to the social policy agenda).
5.
Environment / sustainable development
Promote eco-innovation and eco-business, implement the Kyoto protocol.
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HELLENIC REPUBLIC
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The mid-term Review
In the first half of the Lisbon strategy, results were not
satisfactory and member states failed to meet
expectations
The 2005 Spring European Council relaunched the
Lisbon Strategy by refocusing on Growth and Jobs
Also changes were made concerning the governance:
- Simplify and streamline Lisbon (25 National Reform
Programmes, 14 key indicators)
- Increase political ownership and leadership (A national
coordinator to be appointed, National Reform Programmes to be
discussed in National Parliaments, initiate dialogue with social
partners, NGOs, civil society)
- EU budget to be reshaped to reflect Lisbon priorities
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HELLENIC REPUBLIC
The mid-term Review
• Following the European Council in March 2005, the
Commission presented the Integrated Guidelines
(IG’s) for Growth and Jobs which integrate in one
single document the Broad Economic Policy
Guidelines (guidance on Macroeconomic and
Microeconomic policies) and the Employment
Guidelines.
• The IG’s provide the Member States with a clear,
focused and coherent framework of priorities. The
MS should decide on the relevant policy measures.
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HELLENIC REPUBLIC
National Reform Programmes
• The NRPs will be based on the IG’s and will apply for three
years
• The Member States are asked to submit their NRP to the
Commission by mid-October 2005 – examined in midNovember.
• NRPs will bring together, within a single summary document,
all the existing national reports relevant to the Lisbon Strategy
goals (Cardiff report, employment report, sectoral reports).
• The NRPs will be followed up by annual assessment reports
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HELLENIC REPUBLIC
The Greek National Reform
Programme
Greece, while staying committed to the whole
Lisbon agenda, will focus on three main areas:
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Fiscal stabilization and long-term sustainability of
public finances.
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Promotion of growth: improve the business
environment, enhance competition, increase openness.
3.
Increase employment and productivity: improve
the effectiveness of the educational system, modernize
the labour market through consensus reforms, promote a
knowledge-based society. Emphasis on social cohesion.
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HELLENIC REPUBLIC
1. Fiscal Stabilization
Transparency of public accounts, sound budgetary
policies and macroeconomic stability are considered the
ideal environment for viable growth and effective
structural adjustments.
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After a fiscal audit that clarified the actual position of the general
government accounts, the 2005-6 budgets pursue fiscal stabilization
through ‘mild’ adjustment. Measures were taken mainly on the
expenditure side to reduce the deficit to below 3% by 2006.
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Further structural measures include a new framework for PPP’s (for
easing the substitution of public with private funds in the provision
of infrastructure) and a new framework for enhanced corporate
governance of public companies
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Special attention is given not to halt growth.
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HELLENIC REPUBLIC
2. Promotion of Growth
Growth (expected to exceed 3.5% in 2005-6), should be
fuelled mainly by private investment and by boosting
productivity and competitiveness.
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Improving the business environment:
Greece initiated serious changes by introducing a law on tax
reform, a law on investment incentives and a simpler and
faster procedure for easing start-ups. Furthermore Industrial
Areas are being expanded and modernized.
The New PPP’s framework will create new business
opportunities for the private sector in the provision of
infrastructure.
Also concerning land Planning, master plans for tourism,
renewable energy resources, industry as well as the National
Spatial Plan are being developed.
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HELLENIC REPUBLIC
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2. Promotion of Growth
Completing the internal market:
Increasing the transposition rate is a high priority and measures are being
taken to coordinate the faster adoption of European Directives.
Enhance market competition:
A privatization programme is being applied to further increase market
competition (and also reduce public debt). Stakes in the National Bank of
Greece, Hellenic Petroleum SA, OPAP and OTE were sold with revenues
exceeding the target for 2005 (1.6 b. euros) by 30%. Further moves include
airports, ports, banks.
A competition enhancing bidding process for public works has been
introduced.
Liberalization of markets (energy market)
New opening and closing hours for shops.
Openness of the economy:
Measures are being taken to attract FDI and promote exports
Promotion of ICTs and R&D efforts:
Target for R&D spending is set at 1.5% by 2010, 40% out of which by private
firms (through special tax incentives, promotion of Information Society
projects, e-government).
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HELLENIC REPUBLIC
3. Increase Employment and
Productivity
‘Working smart rather than cheap’
A series of targeted actions to improve the quality of the labour force,
while reducing unemployment and social exclusion through:
 Education & Training
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The target is to spend 5% of GDP on education by 2008 while improving the
efficiency of resources spent
Enhancing the quality of education through introducing evaluation
requirements
Adapting the educational system to the needs of a knowledge-based society:
By training teachers to new methods, supporting postgraduate studies and
research, upgrading libraries, redirecting scholarships to technological fields
Encouraging life-long learning: The target for 2006 is one “second chance”
school in each prefecture. Further targets are flexible university programmes
for part-time students (professionals, mothers), extend the Open University
and enhance links between professional training and the labour market
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HELLENIC REPUBLIC
3. Increase Employment and
Productivity
- Reducing the number of early school leavers: additional
teaching programmes, support of children with cultural and
linguistic particularities
- Promoting entrepreneurial spirit.
- Gender equality: increase women’s participation in
technical and professional training, promote flexible
working hours for mothers, part-time work, kindergarten
facilities. Introduce gender equality in school education as
well as special programmes for increasing female
entrepreneurship.
- OAED is implementing a series of programmes for the
unemployed such as training programmes, work
experience programmes (stage) and wage subsidies
programmes.
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HELLENIC REPUBLIC
Concluding Remarks
Although economic ‘recipes’ can never be exactly copied because of
differences in historical, geographical and social circumstances, the
basic ingredients of the Irish success remain valid: fiscal stabilization,
structural reforms, social approval/cohesion.
The Lisbon strategy is certainly inspired by the Irish success, adopting
the same policy directions. Member states have to choose their own
priorities and tools, depending on their particular circumstances.
Greece is implementing an economic policy focusing on fiscal
stabilization, promotion of growth mainly through mobilizing the
private sector, increasing and upgrading employment and furthering
social cohesion. Some reforms have already been applied, more are
planned. The need for constructive public discussion and broader
awareness, involvement and approval has been stressed and will be
pursued.
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HELLENIC REPUBLIC
Concluding Remarks
A further aspect to be noticed:
As Ireland managed to exploit its relative
geographical and cultural advantages and become
the major gateway to Europe for US investments,
so is Greece attempting to benefit from its relative
position in South-Eastern Europe. Greece can
become the main business hub in this high-growth,
high-potential area by exploiting its geographical
and cultural proximity, creating a business friendly
environment and enhancing the quality of its
labour force.
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